The Russell Index rebalances every June by removing stocks that no longer satisfy its requirements (and incorporating recently improving names).
Many traders are discussing the imminent Russell Index rebalances, as well as the possibility of GME, AMC, and other meme stocks being added to the Russell 1000.
The FTSE Russell implements a set of criteria to choose which business’ stocks will be covered by its benchmark indices each year in June (this year on Friday, June 25).
Investors can monitor these indices in a variety of ways, including through exchange-traded funds (ETFs).
Massive assets, such as pension funds, monitor the index by owning the individual stock components.
If the FTSE adds a 1% weighting to GameStop in the Russell 2000 Index, for example, everyone who follows the Russell 2000 must buy GME shares. To balance this increase, the Russell will cut or eliminate other stocks that no longer match their requirements.
According to the FTSE Russell, around $16 trillion in assets track the Russell indices, which means that a large number of shares may need to be acquired and sold in order for all of these different funds to meet the proper benchmark.
With that kind of volume, it’s easy to see how important it is to know which stocks can be bought and sold before these major funds make their adjustments.
TESLA was a great illustration of how traders were able to get ahead of these changes. It was announced in November 2020 that TESLA would be added to the S&P500 Index. Between the announcement date and the actual addition date, the stock rose over 50%.
It’s worth noting that Tesla’s huge climb into the index was a rare occurrence, and traders shouldn’t expect fifty percent movements for all index occurrences.
So, who will make it?
According to a chart from FTSE Russell, which compiles the indexes, a firm must be worth at least $5.2 billion by May 7 to be included in the Russell 1,000 Index, which is a collection of the top US stocks.
This puts GameStop, the iconic retail trader, in the running to be included, with a market capitalization of nearly $12 billion as of May 7’s market closing.
However, it’s possible that AMC Entertainment just missed the deadline.
Finally, this is Goldman’s best estimate of the additions and deletions…